Wednesday, May 10, 2006

Fed Raises Rates by 1/4

A expected the the Federal Reserve Board once again raised rates by 1/4 percent.

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.

Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.

The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco.

The LaLawyer said on The Housing Bubble Blog "Bottom line: more increases, but no promise that next meeting will be an increase (but probably will). " Agreed.


  1. Keep in mind that there is roughly a one year lag before the Fed's interest rate changes affect the economy. This lag is one of the things that makes monetary policy difficult (although fiscal policy has an even greater lag).

  2. No. That's it for a while. The housing market is taking a beating and it's not in amyone's interest to have it crash and burn. The Feds have done what they set out to do which is toss cold water on the housing market.

  3. No matter what they do in the future, the full effect of today's change won't be felt for roughly a year. It's economics 301. Changing monetary policy is like turning the steering wheel now so your car will turn a mile down the road.

  4. Are they done? It seems like inflation indicators are just now starting to tick up? Expecially with the dollar droping.

  5. If the data does not indicate a slowdown, they are not going to stop. Which will BB choose--the dollar or the bubble? If gas and energy prices stay at this level for a while, which they probably will, and LT rates catch up from their "conundrum", builders keep throwing up those POS McMansions,and resetting ARM's force people to sell, housing is dead anyway. But if he stops, the dollar is toast regardless of what housing does.

  6. If the data do not indicate...sorry!

  7. Dollar or the bubble? He'll likely protect the housing market. And you can already see that foreign markets expect this. The US dollar has dropped from 118 yen to 110 against the dollar in the past week.

  8. I have said 6..i'll stick w/6.
    Still too stimulative.